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Pension prep: 5 things to do in accumulation (age 18 to 44)

6 Jan, 2022

You won't be retiring any time soon, and that means time is on your side. If you're choosing between pension providers, use our comparison table for a good idea of your options and how they stack up. If you also want to choose your own investments, compare the fees you'll need to pay with our SIPP fee calculator. And settle into these top 5 things to think about during these early saving years.

Part of our Pension Planners tribe - Sponsored by AJ Bell Youinvest

1. Save as much as you can as early as you can afford

It's difficult when there are so many competing demands on your salary, but money saved today is worth two or three times as much as it would be if you put it in your pension 20 years from now.

£1,000 invested at age 20, growing at 5% a year (a rough average), would be worth £7,350 by the time you are 60.

£1,000 invested at 40? That would be worth just £2,700 by time you are 60. Time is on your side. Use it wisely.

This is a particularly important consideration if you plan to take a career break, say to retrain or look after children. This can put a major dent in your pension savings, but if you’ve already done the hard work, you can take a bit of a breather without worrying.

2. Get to grips with the stock market

Putting your savings in cash may feel safe, but with savings rates below 1%, it’s riskier than you think. The value of your savings will be dropping all the time because of inflation. £20,000 invested in 2000 would have had to grow to £35,000 to keep pace with inflation. If you’ve been stuck in a 1% interest rate account, you’ll only have £24,400 – a real money loss of £10,600.

Stock markets can seem unpredictable, but they tend to beat inflation and grow faster than cash over time. If you get to know your way round them early, it can help you grow your wealth faster.

3. Top up with every pay rise

This is a favourite tip of advisers. Each time you get a pay rise, making sure you increase your pension savings too. You won’t miss the cash (because you’ve never had it) and it can super-charge your savings, putting retirement in your reach.

4. Take advantage of any company provision

Under the auto-enrolment rules, employees and their employers have to contribute 8% to a pension: 3% from the company and 5% from the employee. As this comes with tax relief, the contributions don’t hurt as much. Equally, many employers will pay more than the minimum. It is possible to opt out, but it is an easy way to build up a chunky pension pot.

Also, it’s worth making sure you’re in the right investment strategy. Most company saving schemes have a default fund that will probably be OK for most people, but if you want to take a bit more risk in the hope of making your money grow faster, there will be options for that.

5. Leave it alone

This is particularly the case if you run your own personal pension. The temptation can be to muck about with it – sell here and buy there. In reality, this will probably add trading costs and won’t improve your long-term returns. You also run the risk of panic selling at times of crisis and then missing the bounce. Set your strategy, set your regular savings, check it a couple of times a year and otherwise leave it alone.

Q&A with pension experts

Questions from Pension Planner tribe members in your age group

Get your head around the benefits of pension saving early on with this video guide from AJ Bell Youinvest.